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Risk, Investment, and Opportunity in a Changing Climate

Companies need to understand climate risks as a central variable in decision-making across the value chain. Photo credit: flickr/jdnx

To stay competitive, companies will need to find ways to adapt to the impacts of climate change.

Record breaking wildfires raging in Arizona, massive flooding disrupting lives from Iowa to Vermont — extreme weather events have been at the forefront of America’s national consciousness. Yet these events and their repercussions are hardly limited to the United States. Think back last year to the floods that affected millions in Pakistan, or the wildfires and droughts that destroyed Russia’s wheat crops, causing price spikes around the world.
While single weather events can’t be definitively linked to climate change, the vast majority of scientists agree that with the rise in temperature that is expected globally in the next few decades, fire, drought, and flooding events like these will in some cases become more frequent and in others more intense. The primary question won’t be how to avoid these impacts, but rather how to prepare for them in advance in order to weather the storm.

The short-termism that guides much corporate-decision making today will not withstand the long-term demands of a world characterized by depleted resources, a growing population, and major climate disruptions.

For businesses — from the multinational to the small and local — the risks posed by climate change are increasing in many parts of the world. These risks are becoming increasingly unavoidable as the amount of greenhouse gas (GHG) emissions we’ve already released have long lifetimes, meaning that change is already loaded into the atmosphere. It is very clear that companies will need to understand climate risks as a central variable or determinant in decision-making across the value chain.

Many companies are realizing that to remain competitive, they will need to look for ways to adapt to the impacts of climate change. This will require some major changes in the way that businesses currently think about risk and investment horizons. The short-termism that guides much corporate-decision making today will not withstand the long-term demands of a world characterized by depleted resources, a growing population, and major climate disruptions.

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In addressing these risks, there is an urgent need to reduce emissions to prevent further climate disruptions. This means pioneering innovative strategies for energy efficiency and cleaner fuels today to avoid higher costs from climate change impacts in the future. It also means anticipating and meeting the challenges that consumers and communities will face in a changing climate.

Companies who plan to be in business in 2050 will take advantage of new opportunities to create shared value by reducing risk in their value chains in a way that also helps people and communities reduce vulnerability to climate impacts on the ground. Developing solutions like green infrastructure, climate-resilient building materials, and water-efficient technologies can foster both company and community vitality.

In our recent report in collaboration with the UN Global Compact, UN Environment Programme, and Oxfam, we share insights from a survey of more than 70 Caring for Climate companies on the topic of how companies are responding to climate change risks and opportunities. This analysis points to some practical measures that the “internal champions” in every company can begin integrating into corporate strategies.

While there is still much to be done to increase businesses’ awareness of the importance of adaptation, this report and others like it show companies that to be winners in tomorrow’s low-carbon economy, they need to engage in partnerships and create shared value today by acting on climate risks and opportunities that improve their own longevity as well as the resilience of the communities they serve.